Saturday, August 14, 2010

A Must Watch: Especially William K Black - the last 8 mns

(click on the heading above for full interview)

The startling nature of the coverup of wrongdoing in the current financial crisis is revealed by William K Black. He has the perfect credentials for making this indictment ...he ran the Savings and Loan cleanup in the 1980's.
Quite successfully, mind you.
This is something everyone can understand and must take to heart. The next financial crisis is baked in and there is no recovery from the current crisis until the issues Black discusses are addressed.

A song I like

Heres a blast from 25 yrs ago....I like it ..hope you do
(click on the heading above)

Thursday, August 12, 2010

Mortgage Debt Solutions - Alan Greenspan makes the case

Alan Greenspan said it best on Meet the Press (click on heading above for full interview) recently:

"It's a critical issue because, as you point out and as I've always believed, we underestimate the impact of stock prices on economic activity. Asset prices are having a profoundly important effect.What created the extent of the contraction globally was the loss of $37 trillion in market value. It collapsed the value of collateral in the system and it disabled finance. We've come all the way back--maybe a little more than halfway, and it's had a very positive effect. I don't know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we've been talking about today or anything anybody else was talking about."

The whole mess started with the unravelling of mortgage values used in plain vanilla CMO's and their highly complex derivative securities. Fix the value of mortgages by arresting the drop in property values and voila! a Greenspan fix.

I have been recommending for more than two years now, that Government has an obligation to step in and underpin the value of the most important asset worldwide: the stock of real estate.

A very large number of companies with exchange listings of their stocks are in a real estate related business; bolstering the value of their collateral the right way by refinancing mortgages at a Federal Agency, can rocket the price of the collateral, and hence their stock prices.

It can also save some vital corporations with huge exposure to mortgages (GE)that when properly accounted for, must unmask their bankruptcy.

And the greatest benefit: preserving the American Dream of home ownership at an affordable level for homeowners. Who knows, a renewed sense of security migh change sentiment around and ignite the economic growth we all want.

The truth shall set you free!

Quotable - Winston Churchill

If you will not fight for right when you can easily win without bloodshed; if you will not fight when your victory is sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a precarious chance of survival. There may even be a worse case. You may have to fight when there in no hope of victory, because it is better to perish than to live as slaves. - Winston Churchill

Analysis: Major banks bolster reserves for mortgage repurchases

The four largest commercial banks in the country -- Bank of America, JPMorgan Chase, Citigroup and Wells Fargo -- booked $2.5 billion in second-quarter charges to cope with requests for mortgage repurchases.

Most of the requests came from Fannie Mae and Freddie Mac. The banks have faced soaring costs as mortgage buyers and insurers search borrowers' files for issues.

How in this wide world does the Government expect co-operation from the banking community in solving the mortgage crisis this way?

They force the banking community to sit on huge excess reserves, and prudent bankers now reserve a large portion of these excess reserves to give back to the Government via Fannie and Freddie mortgage repurchases!!

To make matters even worse, the uncertainty over the fate of said GSE's and the present panicked desperation surfacing in the form of clawbacks from the banks on any pretext, cannot make these "prudent" bankers enthusiastic about taking on any more risk with new mortgages or Heaven Forbid refinancing on terms favourable to the borrowers!

And now, to add misery to these woes the new Finance Reform contains provisions that mandate lending quotas....a major contributing factor in this mortgage mess in the first place!! ...the eggs of the next financial crisis have been laid and will soon hatch!

Imagine that your Government is here to help: you have made more loans to white borrowers than black and hispanics.

So in order to correct this unacceptable statistical anomaly you are ordered to make more loans the other way or face sanctions that will force you out of business!

It matters not a whit to the politicians that statistically, financially and in every other sane and rational deployment of centuries old criteria for lending that this population of borrowers is less credit worthy by any standard. Incomes are lower, collateral is poorer quality, credit histories are far worse, delinquencies are rife... but we are to ignore these inconvenient truths.

Rational business people dont make suicidal investment decisions guranteed to lead to their business demise.

The Federal Government does just that. It's sending more billions to 12 states that it deems most in need of mortgage help so that distressed borrowers can be forgiven parts of their loans. Of course, the new rules will apply. So how can this not again lead to lower lending standards just to meet quotas?

This morass is too difficult for lenders to negotiate. Better they make no loans to anyone except the Government which still allows them to borrow money at effectively no interest and lend it right back at a 2%-3% positive interest carry. And all this is risk free!


Marie Antoinette could not have said it better. They're hungry for bread? Let em eat cake. Sheesch!

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

Good article in yesterday's NY Times titled “Debts Rise, and Go Unpaid, as Bust Erodes Home Equity” (click on heading for full article link)saying the delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up, it says.

Lenders wrote off as uncollectible $11.1B in home equity loans and $19.9B in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88B in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar!

Wednesday, August 11, 2010

The Day after the Fed announcement: uncertainty

Courtesy of Kimberly DuBord,

Kimberly DuBord is the Director of Research for Briefing Research,'s new strategic investment research service. To request a free trial please email

It is the morning after the FOMC meeting and market participants globally are feeling a renewed, heightened level of uncertainty. U.S. equity futures are pointing to over a 100-point drop in the Dow, while the Treasury market strengthens with 10-year yields falling to 2.72%. The global risk appetite has evaporated with crude falling and gold and the yen gaining ground.

The Fed's policy statement Tuesday did little to alleviate double-dip concerns. In actuality, it may have fanned the fears of a downturn.

The directive from the FOMC suggests to us that the Fed is as uncertain about the outlook as the rest of us, especially when taking into account the Aug. 2 speech from Chairman Bernanke who thought then that growth in real consumer spending seemed likely to pick up in coming quarters. In any event, waffling by the Fed is not a confidence builder.

There is clear disconnect amongst Fed members with St. Louis President James Bullard and the Kansas City President Thomas Hoenig taking opposite views. While Hoenig is arguing for a contraction in the Fed's balance sheet and more restrictive language, Bullard is arguing for moves to prevent deflation.

The FOMC decided to keep the Fed's balance sheet steady, choosing to reinvest maturing principal payments from agency debt and MBS in Treasuries. The markets' reaction reflects disparate signals. The fact that the Fed still has to act in a stimulative manner at this point in the process is contributing to concerns that this will be a protracted recovery.

The equity, bond, and currency markets are being re-priced accordingly.

The yen hit a 15-year high against the dollar at 84.73 -- causing a sell-off in the Nikkei. The dollar made gains against the euro and pound, with the U.S. Dollar Index holding above 81.50. Commentary from the Paris-based International Energy Agency of "significant' risks to an economic downturn is only adding more downward pressure to oil prices, which has little fundamental footing above $80 per barrel in this economic climate.

Add in a downbeat growth forecast and slowing inflation forecast from the Bank of England, coupled with weaker economic data in China only stoking the "slower for longer" fires further. The BOE forecasted inflation of 1.5%, under its stated goal of 2.0%, while growth is now targeted to peak at 3.0%, below its May estimate of 3.6%.

The economic data out of China is holding influence over the market. While data ranging from industrial production to retail sales and new lending came in generally as expected, market participants are taking note of the downturn in economic activity. The fears of a hard landing remain close to the surface. For their part, local market participants took a more benign view of the data, lifting stocks despite broad-based declines in the rest of Asia overnight. China has, thus far, executed a "soft landing."

Tuesday, August 10, 2010

Unemployment Currently: a primer on the real numbers

A tip of the hat to Thomas de Marco and David Sackler of Fidelity Capital markets for this summary excerpted from their Market Note of today:

"I thought I would take some space to tie together some anecdotes/data on unemployment.

In our Monday Morning Wake Up call my associate David Sackler commented that listeners should not read too much into the fact that the unemployment rate stayed flat at 9.5% in last Friday’s NFP report.

I second that thought as just like the prior month it was a fiction created by shrinkage in the labor force. We have seen a nearly one million decline in the labor force since April, so holding the labor participation rate constant at April’s level would equate to an unemployment rate of about 10.4% (I think the odds are good the official unemployment rate may flirt with 10% again this year).
David also pointed out that the fixation on private payrolls (warranted to an extent) masks what is going on at state/local government employment. According to his calculations, over the past three months private payrolls showed a gain of +153k, but factoring in the fact that state/local governments shed 102k jobs the net jobs creation was a putrid 51k.

Ignoring the fact that the bulk of the growth in private sector jobs took place in two months (March and April) this accelerated state/local government job cutting has a potential multiplier effect on spending as government jobs are better paying than private sector jobs (which is a sad statement in and of itself).
Over the weekend the NYT had a sobering article titled ‘Jobless and Staying That Way’ (NYT 8/7/10) which had the following kernel: “….half the 14.6 million unemployed have been out of work for more than six months, a level not seen since the Depression….

Not only are more people out of work longer, but their options are narrowing. Roughly 1.4 million people have been jobless for more than 99 weeks, the point at which unemployment benefits run out.

“The situation is devastating,” said Robert Gordon, an economics professor at Northwestern and an expert on the labor market. “We are legitimately beginning to draw analogies to the Great Depression, in the sense that there is a growing hopelessness among job seekers.” (emphasis mine).

Today’s WSJ OP/ED section has a good chart on the civilian
employment-population ratio – which is another and I think instructive way of looking at the jobs market.

The civilian employment-population ratio measures the percentage of working age Americans who have a job – whether they are actively seeking one or not.
As you can see from the related graphic this measure has fallen from a peak of 63% to 58.5% in June (which was the second consecutive decline in the measure). The author pointed out that even in the brutal 1979-1982 recession where the unemployment rate reached 10.8%, the civilian employment-population ratio only fell three percentage points from 60% to 57%.

Finally I would like to point to a July 24 Economist article (citing a recent Pew survey) found that more than half of all workers have experienced a spell of unemployment, taken a cut in pay or hours or been forced to go part-time... Nearly six in ten Americans have cancelled or cut back on holidays… About a fifth says their mortgages are underwater… Fewer than half of all adults expect their children to have a higher standard of living than theirs, and more than a quarter say it will be lower…and the real kicker: One in four of those between 18 and 29 have moved back in with parents!"

Where's the copper to come from to meet future demand?

Mineweb reports (click on heading above for full article) that a shortage of copper will surely develope as the world recovers. Excerpts from the article appear below.

According to Robert Friedland we need to mine as much copper in the next 20 years as we have in the past 110 - where is this copper to come from?

Author: Lawrence Williams
Posted: Monday , 09 Aug 2010


"We need more copper in the next 20 years than was mined in the last 110 years," Ivanhoe Chairman Robert Friedland is reported as saying at the Diggers and Dealers conference in Kalgoorlie, Western Australia, last week. "Those of us in the business don't have any idea where this metal is going to come from."

Now Friedland, whose Ivanhoe Mines still controls the huge Oyu Tolgoi copper-gold project in Mongolia which is being developed in conjunction with Rio Tinto, may be talking from a biased viewpoint, but he has a point. Once economies recover, even if slowly, copper in particular may well find itself in a major demand squeeze.

But, it's unlikely to be a smooth ride for copper ahead, whatever the longer term prospects may suggest. Price performance so far this year has been, to say the least, pretty volatile and this pattern is likely to continue as positive, and negative, assessments continue to be made on the state of the global economy on which the copper market is very dependent. China - and reports on speeding up or slowing down of growth there, will be a major factor, as will speculation and running down, or building up, of inventories.

Copper is also vulnerable to disruptions - particularly when the price rises and the copper miners are seen as making excessive profits.

Political disruptions may also occur as new mine development moves into countries where political stability is more suspect.

Growth in global copper requirements is almost assured though as it is very much an ‘infrastructure' dependent metal and growth aspirations of countries like China, India and the BRIC economies - and virtually all developing nations - where aspirations for Western-type wealth and consumerism is forcing unprecedented levels of global growth. This too will impact other metals and minerals, but few quite so heavily as copper. The future for the red metal looks strong - but will we be able, as Friedland suggested, to supply the world's requirements over the next 20 years

Monday, August 9, 2010

Fed set to downgrade outlook for US

We wait with bated breath for Wednesdays Fed Statement.

By James Politi in Washington Full article in Financial Times (click heading above)

Published: August 8 2010 19:15 | Last updated: August 8 2010 19:15

"The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery.

Faced with weak economic data and rising fears of a double-dip recession, the Federal Open Market Committee is likely to ensure its policy is not constraining growth and to use its statement to signal greater concern about the economy. It is, however, unlikely to agree big new steps to boost growth."